Idfc (Idfc) : Strong Growth Ahead, Dilution Expected

Result Update
May 3, 2010
Rating matrix
Rating : Buy IDFC (IDFC)
Target : Rs 200
Target Period : 12 months Rs 170
Potential Upside : 18 %
WHAT’S CHANGED…
Key Financials
PRICE TARGET .............................................................................................. Unchanged
(Rs Crore) FY08 FY09 FY10E FY11E
EPS (FY11E) ................................................................. Changed from Rs 9.2 to Rs 9.01
NII 694.0 922.0 1059.2 1230.8
EPS (FY12E) .........................................................................................................Rs 11.8
PPP 1072.3 1287.3 1497.3 1728.7
RATING................................................................................... Changed from Add to Buy
Net Profit 744.0 848.0 1028.7 1192.0
Strong growth ahead, dilution expected….
Valuation summary IDFC declared its Q4FY10 consolidated PAT at Rs 227 crore, a jump of
FY09 FY10 FY11E FY12E 95% YoY in line with estimates. Principal investment income surged to
PE (x) 26.0 20.7 18.7 14.4 Rs 105 crore boosting the results. Spreads improved to 2.8%. IDFC
P/ABV (x) believes this year there will be strong growth and has announced plans
3.5 3.1 2.2 2.0
to raise about Rs 3500 crore Tier I equity by end FY11. Non interest
GNPA (%) 0.4 0.4 0.3 0.3 income continues to contribute 47% of net total income. We have
NNPA (%) 0.2 0.2 0.1 0.1 revised our PAT estimate upwards and expect 27 % CAGR over FY09-
RoNA (%) 2.8 3.2 3.4 3.7 11E to Rs 1721 crore.
RoE (%) 14.3 15.9 14.6 14.7 Core net interest income stealing the show
Advances grew 22% YoY with QoQ 7% loan book growth to Rs
Stock data 25,030 crore. With loan book growth expected to be even stronger
Market Capitalisation Rs 22010 crore
going ahead, we expect NII to grow at 23% CAGR over FY10-11E.
NIM has risen to 3.6% from 3.5% in the last quarter. We expect the
GNPA (Q4FY10) 0.3 %
same to come down to 3.0-3.2% by the next two years. We expect
NNPA (Q4FY10) 0.2 % credit to grow at 25% CAGR over FY10-12E to Rs 35,680 crore
NIM (Q3FY10) 3.6 %
NPAs under control on a consistent basis
52 week H/L 179 / 78
Asset quality continues to be strong at 0.2% NNPA and 0.3% GNPA
Equity capital Rs 130 Crore
while provisioning has risen. We do not expect a steep rise in the
Face value Rs. 10
same. With moderate credit costs, overall profitability will be
MF Holding (%) 5.5 maintained.
FII Holding (%) 45.4
Valuation
Price movement (Stock vs. Nifty) With the management giving strong growth guidance and plans on fund
200 7000 raising, we expect IDFC to grow its balance sheet by 22% in FY11E and
PAT growth is pegged at 25% to Rs 1326 crore. We have considered a
5000 dilution of 13% in FY11 at Rs 180. We have revised our target multiple
100 lower to 2.3x FY12E ABV due to expected lower RoEs of 15% level on
3000 account of dilution even though growth targets are increased. However,
the target price has been revised upwards to Rs 200 on an SOTP basis
0 1000 (includes AUM valuation, NSE stake). We recommend BUY on the stock.
Nov-09
Aug-09
Oct-09
Jan-10
Apr-09
Jun-09
Mar-10
Apr-10
IDFC Nifty (RHS) Exhibit 1: Performance Highlights

Rs Crore Q4FY10 Q3FY10E Q3FY09 Q2FY10 YoY Gr.(%) QoQ Gr.(%)
Analyst’s name NII 316.4 258.6 252.9 279.6 25.1 13.2
Kajal Gandhi Other Income 282.0 220.0 161.0 240.0 75.2 17.5
kajal.gandhi@icicisecurities.com Total Income 598.4 478.6 413.9 519.6 44.6 15.2
Viraj Gandhi PPP 369.9 353.4 282.7 411.1 30.8 -10.0
viraj.gandhi@icicisecurities.com
PAT 227.3 223.2 116.9 271.1 94.5 -16.2
Mani Arora
Source: Company, ICICIdirect.com Research
mani.a@icicisecurities.com
ICICIdirect.com | Equity Research

IDFC (IDFC)
Exhibit 2: Outstanding disbursements – slight up tick seen (Rs crore)

12500
10500
8500
(Rs Crore)
Energy continues to have the largest share in the total loan 6500
portfolio
4500
2500
500
Energy
Transport
Telecom
Commercial
Tourism
Others
Exhibit 3: Trend in outstanding disbursement (YoY)

25
23
20 21
15
12
10
(%)
7
5 5
0
-2
1 2 3 4 5 6 7
-5
-8
-10
Growth O/S Disbursement
Loan book growth has improved in the quarter as sequential loan growth
is around 7% while YoY it is 22% with rising disbursals & sanctions.
ROA and NIMs are on the rise. We expect NIM to stay

around 3% to 3.2% in the next two years
Exhibit 4: Break-up of NII Exhibit 5: RoA tree
4 3.5 3.5 3.6
Q4FY10 289 27 3.1 3.2
3.4
3.2
Q3FY10 261 19 3 2.9
2.7
2.5
(%)
Q2FY10 252 25 2.8

2 2.6
2.2 2.3
2.1
Q1FY10 219 25
(Rs Crore) 1
Q2FY09 179 14
FY09
Q110
Q210
Q310
Q410
0 100 200 300 400 NII

Non Interest Income
Infrastructure Treasury RoA
Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Page 2
IDFC (IDFC)
Exhibit 6: Q3FY10: Non-interest income Exhibit 7: Q4FY10: Non-interest income
Principal
Advisory Advisory
A 75% jump in the non interest income to Rs 282 crore also Principal Investmen
13% 14%
led to a surge in profits. Stable management fees Investmen Investmen t
contributed Rs 81 crore with total AUM size of $8.1 billion t Banking Investmen 37%
t
rising from $7.7 billion sequentially. Also, quarterly IB fees 14% t Banking
rose from Rs 29 crore to Rs 51crore on a YoY basis 44%
19%
Managem
ent Fees Managem
29% ent Fees
30%
Exhibit 8: Q4FY10 Borrowing profile Exhibit 9: Q3FY10: Borrowing profile

Rupee Forex Rupee Forex
Loan 8% Loan 10%
15% Sub Debt 16%
Sub Debt
Borrowings are not expected to rise sharply in spite of loan 2% 3%
growth as equity fund raising should also help credit
growth Short
Term Short
Q4FY10 15% Q3FY10 Term
15%
Bonds Bonds
60% 56%
Huge AUM size provides stable management fee income. Exhibit 10: Break-up of AUMs ($8.1 bn in Mar’10 from $7.7 bn in Dec’09)
(Rs Crore)
Private equity, 5992
Fund I, 844
Fund II, 1988
Fund III, 3160
Mutual Fund, 26527

Project equity, 3837

Page 3
IDFC (IDFC)
Exhibit 11: Equity dilution to maintain leverage and keep RoEs contained
18.0 5.0
15.9
16.0 4.8 4.8 4.8
4.7 14.7
14.6 14.6
4.5
13.7
14.0 4.3 4.0
13.0
(x)
(%)
12.4 4.0
12.0
10.0 3.0
FY09 Q110 Q210 Q310 Q410 FY11E FY12E
RoE Leverage (RHS)

Page 4
IDFC (IDFC)
ICICIdirect.com coverage universe (BFSI)

Bank of India NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code BANIND CMP 389 FY10 1894.1 36.0 10.8 1.8 0.8 13.4
Target 383 FY11E 2566.8 48.8 8.0 1.6 0.9 16.6
Mcap (Rs Cr) 20458 Upside (%) -1.5 FY12E 3216.3 61.2 6.4 1.5 0.9 19.1
Bank of Baroda NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code BANBAR CMP 691 FY10 3058.3 83.7 8.3 1.8 1.0 1.2
Target 722 FY11E 3710.5 101.5 6.8 1.5 1.1 1.2
Mcap (Rs Cr) 25258 Upside (%) 4.5 FY12E 4580.7 125.3 5.5 1.2 1.2 1.3
Dena Bank NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code DENBAN CMP 89 FY10 511.3 17.8 5.0 1.2 1.3 1.0
Target 91 FY11E 619.2 16.0 5.6 1.1 1.1 1.0
Indian Oveseas Bank NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code INDOVE CMP 96 FY10 1292.7 13.0 7.4 1.0 0.6 9.9
Target 90 FY11E 891.5 16.4 5.9 1.0 0.6 12.0
IDBI Bank NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code IDBI CMP 125 FY10 1031.1 14.2 8.8 1.2 0.5 13.2
Target 141 FY11E 1333.2 16.7 7.5 1.2 0.5 14.8
OBC NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code ORIBAN CMP 355 FY10 1134.7 45.3 7.8 3.5 0.9 14.6
Target 377 FY11E 1696.2 67.7 5.2 3.0 1.1 19.0
Punjab National Bank NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code PUNBAN CMP 1046 FY10 3719.0 118.0 8.9 4.3 1.4 23.0
Target 950 FY11E 4514.8 143.2 7.3 3.9 1.4 24.2
SBI NP (Rs Bn) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code STABAN CMP 2297 FY 09 91.2 143.7 16.0 3.0 1.1 17.1
Target 2251 FY10 101.5 159.8 14.4 2.8 1.0 16.5
Union Bank of India NP (Rs Bn) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code UNIBAN CMP 315 FY10 2053.7 40.7 7.7 1.6 1.2 21.4
Target 310 FY11E 2349.0 46.5 6.8 1.3 1.1 20.6
Axis Bank NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code UTIBAN CMP 1269 FY10 2514.5 62.1 20.4 3.3 1.7 19.2
Target 1302 FY11E 3129.7 76.5 16.6 2.7 1.6 17.5
Dhanlaxmi Bank NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code DHABAN CMP 155 FY10 24.0 3.7 41.5 2.5 0.4 5.5
Target 170 FY11E 65.3 9.4 16.4 2.1 0.7 12.8
HDFC Bank NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code HDFBAN CMP 2004 FY10 2948.7 64.4 31.1 4.3 0.3 1.8
Target 2151 FY11E 3972.3 87.6 22.9 3.9 0.3 1.7
Kotak Bank NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code KOTMAH CMP 738 FY 09 293.9 8.5 86.5 7.1 1.2 11.4
Target 734 FY10 275.8 8.0 92.5 6.4 1.0 7.5
South Indian bank NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code SOUIN0 CMP 177 FY10 265.6 23.5 7.5 1.5 1.1 19.2
Target 201 FY11E 359.8 31.8 5.6 1.2 1.3 22.0
Yes Bank NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code YESBAN CMP 294 FY10 477.7 14.1 20.9 3.3 1.6 20.3
Target 316 FY11E 666.4 19.6 15.0 2.9 1.5 20.2

Page 5
IDFC (IDFC)
Continued…
NBFC
IDFC NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code IDFC CMP 170 FY 09 848.0 6.5 26.0 3.5 2.8 14.3
Target 200 FY10 1062.1 8.2 20.7 3.1 3.2 15.9
LICHF NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code LICHF CMP 958 FY 09 532.4 62.6 15.2 3.5 2.0 25.3
Target 1013 FY10 662.5 69.0 13.8 3.0 2.0 23.8
Rel Cap NP (Rs Cr) EPS (Rs) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code RELCAP CMP 734 FY 09 1014.1 41.2 17.8 2.4 5.9 14.4
Target 800 FY10 555.6 22.6 32.5 2.4 2.9 7.2
Brokerage firms
Edelweiss Capital NP (Rs Cr) EPS (Rs) PE (x) P/BV (x) RoNA (%) RoE(%)
Idirect Code EDECAP CMP 406 FY10 255.3 32.0 12.7 1.3 6.7 11.5
Target 494 FY11E 323.7 40.6 10.0 1.2 6.4 13.2
India Infoline NP (Rs Cr) EPS (Rs) PE (x) P/BV (x) RoNA (%) RoE(%)
Idirect Code INDINF CMP 109 FY10 234.3 8.3 13.2 1.8 9.0 14.6
Target 111 FY11E 239.6 8.5 12.9 1.6 7.4 14.2
MOFSL NP (Rs Cr) EPS (Rs) PE (x) P/BV (x) RoNA (%) RoE(%)
Idirect Code MOTOSW CMP 181 FY 09 93.4 6.3 27.1 3.1 6.6 11.8
Target 203 FY10 174.3 11.9 14.4 2.7 10.5 19.0

Page 6
IDFC (IDFC)
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Add, Reduce, and Sell. The performance horizon is two years unless specified and the
notional target price is defined as the analysts' valuation for a stock.
Strong Buy: 20% or more;

Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,

ICICI Securities Limited,
7th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400093
research@icicidirect.com
ANALYST CERTIFICATION
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accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.
Disclosures:
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Result Update

IDFC Nifty (RHS) Exhibit 1: Performance Highlights

ICICIdirect.com | Equity Research

Exhibit 2: Outstanding disbursements – slight up tick seen (Rs crore)

Exhibit 3: Trend in outstanding disbursement (YoY)

Growth O/S Disbursement

Source: Company, ICICIdirect.com Research

ROA and NIMs are on the rise. We expect NIM to stay

Q2FY10 252 25 2.8

0 100 200 300 400 NII

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Exhibit 6: Q3FY10: Non-interest income Exhibit 7: Q4FY10: Non-interest income

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Exhibit 8: Q4FY10 Borrowing profile Exhibit 9: Q3FY10: Borrowing profile

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Fund III, 3160

Mutual Fund, 26527

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

RoE Leverage (RHS)

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

ICICIdirect.com coverage universe (BFSI)

ICICIdirect.com | Equity Research

ICICIdirect.com | Equity Research

Strong Buy: 20% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICIdirect.com | Equity Research

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